In the midst of several high profile yellow pages wheeling and dealing, most of which involve venture capital and M&A money, Bell Canada is considering using a telephone directory securitization to raise funds to repurchase itself from Dallas-based SBC Communications, which inherited a 20% stake in BC when it acquired Ameritech earlier this year.
The move would be part of a $4.3 billion repurchasing plan. BCE believes it can reap between $1 billion and $2 billion from its directory business. Ranked seventh on Simba Information's North American yellow pages publisher rankings, the BCE unit - named Bell ActiMedia - has not ruled out the traditional M&A market versus securitization.
In a Thomson/First Call report on the repurchasing plan, CIBC World Markets analyst Dvai Ghose supported the securitization option, although he did not make any predictions. "BCE's... financing plan should at worst be only slightly negative on EV to Ebita multiples and on EPS if BCE decides that Bell Canada should sell its directories business outright," he writes. "The overall transaction could be slightly accretive to EPS if BCE chooses to monetize Bell Canada's yellow pages through an asset-backed loan, rather than an asset sale."
The deal is expected in the third quarter.
Meanwhile, industry experts are giving Qwest Communications Inc. about two weeks to sell off its directories unit before the deal succumbs to a combustible mishmash of accounting, regulatory and legal pressures. That's about the same amount of time in which the fates of alternate yellow pages offerings from such incumbent telcos as Sprint Corp. will be decided.
Denver-based Qwest originally put its directories unit, named Qwest Dex, on the block in May as part of a desperate restructuring aimed at adding some black to its reddening balance sheet. Like most other yellow pages publishers, Qwest Dex is viewed as a business whose lack of top-line growth is more than offset by its consistent profit production at high margins. It is also the fourth-largest yellow pages publisher in North America based on publishing revenue, with 2001 Ebitda of $700 million.
The deal was pitched with an $8 billion to $10 billion price tag, which could make it the second-largest leveraged buyout in history if it is consummated at more than $8.4 billion.
To be sure, there are plenty of deals to choose from in this space. Market research firm Simba is anticipating more than $13 billion in domestic yellow pages M&A activity in 2002, which is up nearly 400% from the $3.3 billion of activity in 2001, and well over twice the $6.2 billion and $6 billion the sector raised in 2000 and 1999, respectively.
Sprint, for example, is trying to unload its Sprint Publishing & Advertising group (SPA) for approximately $2 billion. The group is the sixth-largest North American yellow pages publisher, according to Simba rankings based solely on publishing revenue.